The Bank of England has intervened to halt a massive sale of bonds and stem market chaos
caused by the new government’s tax cuts and fiscal plan.
The central bank announced that it will suspend the planned start of its bond selling next week
and begin temporarily buying long-dated bonds to calm jittery markets.
Chaos has engulfed British markets and sent the British currency to an all-time low after the
government of new Prime Minister Liz Truss announced late last week the biggest tax cut
measures in the United Kingdom since 1972.
British bond yields were on course for their biggest monthly rise since 1957 as investors flee
British fixed income markets following news of the fiscal policy.
The British measures include massive unfunded tax cuts that have drawn global criticism,
including from the International Monetary Fund (IMF).
Critics say now is not the time to be implementing sweeping tax cuts with inflation running at a
40-year high in England and interest rates continuing to rise.
In a news release, the Bank of England said it was monitoring the “significant repricing” of U.K.
and global assets, which has hit long-dated U.K. government bonds.
Starting today (September 28), the central bank will begin temporary purchases of long-dated
U.K. government bonds to “restore orderly market conditions.”
The Bank’s Financial Policy Committee acknowledged that the dysfunction in the bond market
poses a risk to England’s financial stability and chose to take act immediately.
The Monetary Policy Committee’s target of an annual £80 billion ($85 billion U.S.) reduction of
its bond holdings remains unchanged, the central bank said in its news release.
Yields on United Kingdom 30-year bonds and 10-year bonds dropped by more than 30-basis
points each following the central bank’s announcement.
